HARTFORD, CT—A state Banking Department hearing officer has upheld the agency’s decision to revoke the license of East Hartford-based 1st Alliance Lending over the expiration of a surety bond.
The company and the Banking Department have been locked in a dispute since last year over the role of call center staff in the mortgage pre-approval process. During the dispute, 1st Alliance attempted to voluntarily surrender its Connecticut license to settle the case, company President John DiIorio said in testimony in September.
But the state said the voluntary surrender was merely an offer, and not a guarantee of acceptance. Once the company’s $200,000 surety bond expired on July 31, the agency was required to revoke the lending license by state statute. With no bond in place to potentially protect consumers, lenders are not allowed to operate, the state said.
The decision issued Oct. 4 upholds the Aug. 1 lending license revocation.
1st Alliance and the state were notified in May that the bond would expire July 31, and DiIorio said his company interpreted a notice from the state, which mentioned voluntary surrender, to be a settlement offer. He said the company relied on communications from Banking when it opted not to pay $5,000 to reinstate the surety bond with another insurer and instead attempt to give up its license to do business in Connecticut.
The hearing officer, who is an official within the Banking Department, wrote in the Oct. 4 decision that state statutes allow the commissioner to consider a request to voluntarily surrender, but do not require an offer to be automatically accepted.
When the surety bond expired, state statutes required the Banking Department to revoke the lending license, the hearing officer wrote.
Attorney Ross Garber, who represents 1st Alliance, said the company would appeal the decision to Superior Court.
“1st Alliance Lending has ceased all mortgage related activities, surrendered all its licenses, and is on the brink of failure. Connecticut has lost 150 jobs as a result of this DOB action,” the company said in a statement.
“As for the Connecticut Banking Department’s order to revoke the company’s license, this was expected. It is part of the DOB’s unlawful campaign to regulate through a game of ‘gotcha’ and drive away a law-abiding company that other states welcome with open arms. We will appeal this decision to court, where the law – not some bureaucrat’s vision of what the law should be – applies,” the statement said.
In a separate proceeding, the Banking Department has also begun a process to revoke the license that could result in penalties for the company.
Appeals hearings are unusual because most cases are settled, said Banking Department spokesman Matthew Smith.
“The facts in this case point to the only conclusion that can be made in accordance with Connecticut Banking Law: 1st Alliance failed to fund a surety bond, even though there was opportunity to do so as testified to during the hearing by John DiIorio himself. This triggered an automatic suspension of their license,” Smith said in a statement. “At the time of the hearing, expedited at 1st Alliance’s request and agreed to by the Department, no surety bond was in place, leaving the Commissioner no choice but to revoke their license.”
The dispute centers on the intake procedures 1st Alliance was using to begin mortgage pre-approvals consumers get during the home buying process. The state claims consumers could have been misled by these employees, while 1st Alliance says they had no role in the decision-making process for mortgage pre-approvals and only served to enter data that would later be considered by licensed loan officers.
1st Alliance has suspended all of its lending operations while its battle with the state continues. The company had about 170 employees a few years ago, but is now down to fewer than 20 now, DiIorio said. He has accused the state of purposely trying to shut down the company with aggressive and unfair tactics.
The state is seeking $1.5 million in penalties. Testimony began in late September, and the case is scheduled to resume later this month.
Garber said 1st Alliance could be operating in other states where its license is still active, but has elected to suspend all lending to work to focus on resolving the dispute in Connecticut. The company’s goal continues to be to resume operations elsewhere, he said.